The rise of Kenya’s debt, fuelled by fiscal deficits and a widening gap between revenue and expenditure, has become a significant political issue due to its high levels and the associated risks to the country’s economic stability.

Earlier this week, global ratings agency, Moody’s, released its latest outlook report on Kenya, indicating that the country’s cost of servicing its debts is expected to remain stubbornly high, as the government relies on the domestic debt market to fund its budget shortfalls.

Moody’s cautioned that the government’s current financing could further strain Kenya’s credit profile and long-term debt sustainability. The country has one of the highest debt interest costs-to-revenue ratios in the world, Moody’s noted, adding that the government spends a third of its revenue on settling interest payments.    

The Ministry of Finance set the government’s fiscal deficit for the financial year, which started early this month, at 4.8 per cent of economic output. This is narrower than the 2024/25 deficit of 5.7 per cent, as presented in the budget to Parliament last month.

Following these results, Moody’s said that the target could slip as the government confronts acute fiscal pressures. “Kenya’s revenue generation capacity remains structurally weak,” Moody’s said, citing missed revenue collection targets.

Criticism from Political Leaders

Several leaders have been criticising the government regarding the country’s rising debt. Among them is United Democratic Alliance member and Kiharu Constituency MP, Ndindi Nyoro, who has been a vocal critic of the government’s handling of Kenya’s public debt.

Recently, the MP, a former Chair of the National Assembly Budget, warned that the country is “edging dangerously close to default,” cautioning that any signs of inability to service loans, especially amid ongoing debt-restructuring talks with major creditors such as China, could trigger severe economic consequences. Already, the country’s debt has hit the KSh 11 trillion mark.

The MP has even criticised the government for underplaying the gravity of the situation and alleged that official figures often mask the actual financial dangers. Ndindi has strongly opposed attempts at higher taxation as a remedy, arguing that increased taxes distort economic behaviour and ultimately depress revenue rather than strengthen it.

Former Prime Minister Raila Odinga also acknowledged the swift rise in debt but framed borrowing as legitimate only when it finances productive investments.

Appetite for Debt

The government has increased its appetite for debt, projecting a total debt of KSh 923.2 billion for the financial year 2025/26, a 4.1 per cent increase from KSh 887.2 billion in the financial year 2024/25.

The move is expected to increase the cost of debt servicing, given that both foreign and domestic debt have been ballooning due to wide budget deficits. Additionally, the government has a continued inclination towards domestic borrowing, projecting an increase of 4.9 per cent to KSh 635.5 billion in the financial year 2025/26, from KSh 605.7 billion in the financial year 2024/25. This remains a risk to lending to the private sector, given the increased credit demand by the government in the absence of alternative borrowing options.

Notably, the government has also turned to private placements, as seen in the recent issuance of a USD 500 million amortising note maturing in 2032, which is part of the USD 1.5 billion in private bond placements signed in February 2025, demonstrating its efforts to raise funds amid constrained access to external financing.